What Should I Invest IN???

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There’s a handful a questions that I get dozens of times a week. Where do I buy a stock? Can I transfer my 401k to a Roth IRA? What’s the best investing account? And last, what do I invest in?

That last question is hands down the question that I get the most… by a landslide. It’s also a question that I either don’t answer at all or reply with something along the lines of “it depends on your goals, investing timeline, and risk tolerance.”

But, why do I do that? Why don’t I just answer the question?

See, asking a finance person “what do I invest in?” point blank is almost like walking up to a random doctor and asking “what medicine should I take?” The doctor doesn’t know you. They don’t know your symptoms, allergies, medical history, current medications, etc. So it’s not likely they would just write you a prescription without first getting to know a bit about the situation. Once they can diagnose the issue, understand your history and/or allergies, they can write you a prescription if needed.

That’s kinda how it works with finance people, at least it should (if it isn’t, that should be your sign to kindly walk away)… For starters, I’m not a financial advisor so I can’t give you recommendations on what to invest in. Next, I don’t know who you are, your goals, your debt situation, how long you have to invest, or how much risk you’re comfortable with. A good financial advisor will sit down with you, get to know you, and take the time to understand all of those things.

A GREAT financial advisor is someone who will charge you a flat fee to do so, as opposed to one that charges you a commission known as an “assets under management” fee (you don’t want to work with someone like this, at least not when you’re just starting out).

Working with a financial advisor is a great idea to help you come up with a game plan of how much to invest, what accounts to use, what to invest in, and so much more.

This is called a financial plan and it’s kind of like having an address to a destination. If you’re going somewhere new you don’t normally just get in your car and start driving aimlessly right? No! You get the address, put it into your GPS, and follow the directions. That’s basically what a financial plan is. It’s a set of “directions” that will help you understand where you’re going, what the best route to take is, and, most importantly, help you know when you’ve arrived.

What’s the best investing account?

Different investing accounts are better for different purposes. For example, a Roth IRA can be a GREAT investing account for a young person that is looking to start investing for their retirement. However, a Roth IRA is probably not a good investing account for someone who wants to save for their kids education. For something like that, maybe a 529 plan or a Coverdell education savings account could be a better fit. Do you see why just asking what the best option is without any context is a bad idea? Again, working with a fee only financial advisor can help you figure out which account, or accounts, would be best to help you achieve your goals.

I always say that figuring out what your goal is, or your destination address, should be step 1 when in comes to investing. It’s important to understand where it is that you’re going so that you can figure out the steps you need to take to get there.

I hope I gave you something good to think about this week, see you next week!

Neyra

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